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How do the Total Debt Servicing Ratio (TDSR) and Mortgage Service Ratio (MSR) affect your home loan?

26 Aug 2016SOURCE: CPF Board

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Buying a new home is a huge commitment in terms of finances and you might be considering a mortgage loan to ease the burden over a longer period of time. Do you know how much exactly you can borrow?

Let's use Calvin as an example to figure out how much he can borrow from the bank based on his Total Debt Servicing Ratio (TDSR) and Mortgage Service Ratio (MSR).

What is the Total Debt Servicing Ratio (TDSR)?

The TDSR was implemented to prevent you from being financially overextended because of a property purchase beyond your means. The TDSR limits the amount you can borrow for a mortgage loan to 60% of your gross monthly income less any outstanding debts you have. These outstanding debts include:

Credit card balances (including "instalment plans" with retailers)

Student loans

Personal loans

Car loans

Other home loans (if applicable)

Since Calvin and his fiancée draw a total combined income of $4,200, 60% of that amount would work up to $2,520. Taking into account that they have a student loan of $1,000 every month, this means they would be able to take a home loan with monthly repayments up to $1,520.

What about the Mortgage Service Ratio (MSR)?

The story doesn't end there though. If you are buying public housing such as BTOs, resale HDB flats or ECs, you will also be subject to the MSR of 30%. This means that the proportion of your monthly mortgage repayments cannot exceed 30% of your gross monthly income.

In Calvin's case, 30% of their monthly combined income means they would be able to take a home loan with monthly repayments up to $1,260 based on the MSR.

Taking both TDSR and MSR into account

Considering both TSDR and MSR, you would be able to take a monthly loan with monthly repayments of up to the lower of the two amounts.

Using Calvin's example, they would be able to take a home loan with monthly repayments of up to $1,260.

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An initiative of the Central Provident Fund Board, 'Are You Ready?' aims to help you understand the different aspects of your CPF savings as you go through the key stages of your life - from starting work, buying a house to planning for your golden years. It also seeks to give you insights on how you can better manage your finances, grow your nest egg and work towards a secure retirement.